Promulgation Authorities:  General Administration of Customs

Promulgation Date:  2018.11.23

Effective Date:  2018.11.23

Validity Status:  valid

Administrative Measures of the Customs of the People's Republic of China on Scraps, Remaining Materials, Defective Products and By-Products in Processing Trade and Damaged Bonded Goods (Revised in November 2018)

Administrative Measures of the Customs of the People's Republic of China on Scraps, Remaining Materials, Defective Products and By-Products in Processing Trade and Damaged Bonded Goods (Revised in November 2018)

Article 1    In order to regulate the customs supervision on scraps, remaining materials, defective products, by-products and damaged bonded goods generated during the processing of bonded imported materials, these Measures are developed according to Customs Law of the People's Republic of China (hereinafter referred to as the "Customs Law"), relevant laws and administrative regulations.

Article 2    Definitions of the following terms in these Measures:

Scraps refer to waste and scraps in reasonable quantity within Custom's approved unit consumption (hereinafter referred to as unit consumption) that are produced in the processing, can no longer be used to process finished export products under the contract by the processing and trade enterprises engaged in processing and export.

Remaining materials are the imported materials for processing and trade that the processing and trade enterprises still have in the processing and exporting businesses that can continue to be used to process finished products.

Defective products refer to the products (including finished products and unfinished products) that are processed or exported in the production process, have serious defects or fail to meet the export contract standards, and cannot be re-exported.

By-products refer to one or more other products produced simultaneously in the process of processing the finished goods specified in the export contract (i.e., the main products) of the processing and trade enterprises engaged in processing and export businesses, which the export contract does not stipulate any re-exports.

Damaged bonded goods are the bonded imported materials and products that are lost, short or damaged and cannot be re-exported due to force majeure or other legitimate reasons approved by the Customs.

Article 3    The scraps, remaining materials, defective products, by-products and damaged bonded goods generated after the processing of bonded materials are supervised by the Customs. No enterprise, entity or individual may sell or use them for other purposes without the permission of the Customs.

Article 4    Where a processing and trade enterprise applies for selling scraps domestically,

(1) after the inspection status classification for the application to sell scraps domestically has been done, the Customs shall, according to the application made by the processing and trade enterprise, apply applicable tax rate and the validated price of the scraps to impose tax or exempt or deferred interests.

(2) after the inspection status classification for the application to sell scraps domestically has been done according to the application made by the processing and trade enterprise, the applicant is exempt from submitting licence documents, provided that it/he falls within the scope of management of the import licence issued by the Development and Reform Commission, the Ministry of Commerce, the Ministry of Ecology and Environment and their authorized departments.

Article 5    Where a processing and trade enterprise declares that the remaining materials are transferred to be used for another processing trade contract, such transfer shall be within the same operating enterprise or the same processing enterprise, of the same imported materials and under the same method of processing trade. Where the conditions are met, after the Customs have approved the unit consumption according to the regulations, the enterprise may go through the formalities for the cancellation of the contract and transfer of the remaining materials. If the transfer contract for remaining materials has been approved by the competent commercial authority, the original examination and approval department shall handle the relevant procedures according to the way of change. If the transfer amount of remaining materials does not increase the total import amount of the approved contract, it will be exempted from the change formalities. In order to establish a new contract, the competent commercial authority shall handle the application according to the current regulations governing the processing trade.

If there is one of the following circumstances when a processing and trade enterprise declares transfer of remaining materials, the Customs shall handle the case after the enterprise pays a risk guarantee that does not exceed the amount of tax payable for the carry-over bonded materials:

(1) The same enterprise declares the transfer of remaining materials to another processing enterprise;

(2) The amount of remaining materials transferred reaches 50% or more of the total imported materials under the processing trade contract; and

(3) Two or more extension procedures have been completed for the processing trade contract of remaining materials.

If the transfer of remaining materials involves more than one Customs, relevant formalities shall be completed with the Customs at the places where both parties are located respectively, and the risk guarantees shall be collected by the Customs at the place where the transferee is located.

Any processing and trade enterprise listed in the preceding paragraph that is subject to risk guarantees is exempt from risk guarantees in one of the following circumstances:

(1) Applicable to Class A management of processing trade;

(2) The contract for the actual transfer of the account has been implemented, and the actual transfer amount of the account is not less than the amount of tax payable for the carry-over bonded materials; and

(3) Where the original enterprise has such circumstances provided for by law as relocation, merger, division, reorganisation, restructuring, equity change, etc., and the current enterprise inherits the main rights and obligations of the original enterprise or the relationship between creditor's rights and debts, the transfer of remaining materials shall not be restricted by the same business enterprise, the same processing enterprise or the same trade.

Article 6    Where a processing and trade enterprise applies for selling remaining materials domestically or finished products made from remaining materials domestically, the following conditions shall be met:

(1)  If the amount of remaining materials accounts for less than 3% (inclusive) of the total imported materials under the processing trade contract, and the total value is less than RMB 10,000 (inclusive), the competent Customs shall charge off the remaining materials after impose tax and deferral interests thereon according to regulations. If the remaining materials are subject to import licence management by the Development and Reform Commission, the Ministry of Commerce, the Ministry of Ecology and Environment or their authorised departments, they shall be exempt from the submission of the licence.

(2)  If the amount of remaining materials accounts for more than 3% of the total imported materials under the processing trade contract or the total value is more than RMB 10,000, the Customs shall collect the tax and the tax deferred interest on all the remaining materials for the domestic sales under the contract according to regulations. If the remaining materials are subject to the import licence management, the enterprise shall also obtain the relevant import licence in accordance with the regulations. The Customs shall conduct a systematic automatic comparison check on the electronic data of the relevant import licence.

(3) If the finished products produced using remaining materials need to be sold domestically, the Customs shall comply with the provisions of Item 1 or 2 of this Article according to the corresponding value of the imported materials.

Article 7    Where a processing and trade enterprise intends to sell defective products domestically, it shall, in light of the corresponding imported material value, go through formalities according mutatis mutandis to the provisions of Item 1 or 2 of Article 6 of these Measures.

Article 8    For the by-products produced in the processing or recovered that can be extracted, if the processing and trade enterprise dose not re-exported them, it shall truthfully make declaration when setting up manual or going through writing off formalities with the Customs.

For by-products that require domestic sales, after the inspection status classification for the application made by the processing and trade enterprise to sell scraps domestically has been done, the Customs shall, according to the said application, impose tax or deferred interests at the applicable tax rate and the assessed price.

After the inspection status classification for the application to sell scraps domestically has been done according to the application made by the processing and trade enterprise, if the enterprise is subject to import licence management, it shall obtain the licence. The Customs shall conduct a systematic automatic comparison check on the electronic data of the relevant import license.

Article 9    If damaged bonded goods in process trade (including scraps, remaining materials, defective products and by-products) are lost, short or damaged in the transportation, storage or processing, the processing and trade enterprise shall timely report to the competent Customs. The Customs shall check and collect evidence according to the situation.

(1) For the bonded goods that are damaged due to force majeure factor, upon being verified by the Customs, if the damaged bonded goods are lost, or although not lost, are completely lost in use value and cannot be reused, the Customs shall apply for tax-free write-off. If, although the damaged bonded goods lost its original use value, it can be reused, the Customs shall write off them after charging the tax and tax deferred interest on the imported materials at the approved price. If the original imported materials corresponding to the damaged bonded goods are subject to import license management by Development and Reform Commission, the Ministry of Commerce, the Ministry of Ecology and Environment or their authorised departments, they can be exempt from the submission of license. When applying for cancellation within the prescribed period of writing off, the enterprise shall provide the insurance compensation notice issued by the insurance company and other valid certification documents recognized by the Customs.

(2) Except for force majeure factors, if the bonded goods are lost, short or damaged in the transportation, storage or processing due to other justifications recognized by the Customs, the Customs shall conduct the writing off procedures according to the certifications issued by the relevant competent authorities and the insurance indemnity notice issued by the insurance company, after charging tax and the tax deferred interest. If the original imported materials corresponding to the damaged bonded goods specified in this paragraph fall within the scope of the import license, the enterprise shall obtain the relevant import license in accordance with the regulations. The Customs shall conduct a systematic automatic comparison check on the electronic data of the relevant import licenses, except for those as provided for in Articles 4, 6 and 7 of these Measures that are exempt from the submission of import license.

Article 10    Where a processing and trade enterprise applies for the return and exit of scraps, remaining materials, defective products, by-products or damaged bonded goods for some reasons, the Customs shall process writing off formalities by virtue of the certificates for return shipment according to the relevant provisions governing return shipment.

Article 11    The processing and trade enterprise shall entrust an entity that has statutory qualifications to dispose of scraps, remaining materials, defective products, by-products or damaged bonded goods if it cannot be sold domestically or returned. The Customs shall conduct the writing off formalities on the strength of relevant documents, receipts, and certificates issued by the disposal entity.

The Customs may dispatch personnel to supervise the disposal, and the processing and trade enterprise and relevant disposal entity shall cooperate. The processing and trade enterprise shall declare to the Customs truthfully for the income obtained from the disposal, and the Customs shall process the tax collection procedures in accordance with the regulations governing the domestic sales of scraps.

Article 12    For scraps, remaining materials, defective products, by-products and damaged bonded goods subject to import tariff quota management, the Customs shall proceed as follows:

(1) According to the application made by the processing and trade enterprise with the Customs for domestic sales, if the scraps' status of inspection is classified as products under the tariff quota management, the Customs shall charge the tax according to the tariff quota rate.

(2) According to the application made by the processing and trade enterprise with the Customs for domestic sales, if the by-products' status of inspection is classified as products under the tariff quota management, and if the enterprises can submit the relevant import quota document to the Customs as required, the Customs will levy taxes according to the tariff quota rate. If the enterprise fails to submit the relevant import quota document to the Customs as required, the Customs shall handle the case in accordance with relevant regulations.

(3) If the remaining materials and defective products are subject to the tariff quota management, and if the enterprise can submit the relevant import quota license to the Customs as required, the Customs shall levy taxes at the tariff quota rate. If the enterprise fails to submit relevant document to the Customs as required, the Customs shall handle the case in accordance with relevant regulations.

(4) For the damaged bonded goods caused by force majeure factors, if the corresponding imported materials are goods subject to tariff quota management, the Customs shall levy taxes at the tariff quota rate. For the damaged imported goods caused by other legitimate reasons recognized by the Customs, if the corresponding import materials are subject to the tariff quota management, and the enterprise can submit the relevant import quota license to the Customs as required, the Customs shall levy taxes at the tariff quota rate. If the enterprise fails to submit the relevant import quota license to the Customs as required, the Customs shall handle the case in accordance with relevant regulations.

Article 13    Those who are subject to anti-dumping duties, anti-subsidy duties, supporting measure tariffs or retaliatory tariffs (hereinafter collectively referred to as special tariffs) shall be handled as follows:

(1) According to the application made by the processing and trade enterprise with the Customs for domestic sales, if scraps' status of inspection of domestic sales is classified as products subject to special tariffs, the Customs shall exempt special tariffs that need to be imposed;

(2) According to the application made by the processing and trade enterprise with the Customs for domestic sales, if by-products' status of inspection of domestic sales is classified as produces subject to special tariffs, the Customs should levy special tariffs that need to be imposed according to regulations;

(3)  If the remaining materials and defective products are subject to special tariffs, the Customs shall levy special tariffs to be imposed according to regulations; and

(4)  For the bonded goods damaged by force majeure factors, if the original use value is lost, and the corresponding imported materials are subject to special tariffs, the Customs shall exempt the goods from special tariffs; if the damage is due to other legitimate reasons approved by the Customs, and corresponding imported materials are subject to special tariffs, the Customs shall levy special tariffs to be imposed according to regulations.

Article 14    A processing and trade enterprise shall go through the import and export clearance formalities for scraps, remaining materials, defective products, by-products and damaged bonded goods as follows:

(1) It shall declare according to the name of the original imported materials in its processing trade for domestic sales of remaining materials, defective products and damaged bonded goods in the processing trade.

(2) For the processing trade scraps and by-products, it shall declare according to the inspection status under its application for domestic sales to the Customs.

Article 15    Customs' supervision of scraps, remaining materials, defective products, by-products, etc. generated after the processing of bonded imported materials by a processing and trade enterprise in a bonded zone or export processing zone shall be conducted in accordance with the regulations governing bonded zones and export processing zones.

Article 16    Violation of the provisions of the Customs Law and these Measures, which constitute smuggling or violation of Customs regulations, shall be punished by the Customs in accordance with the provisions of the Customs Law, the Regulations of the Customs on the Implementation of Administrative Penalties and other relevant laws and administrative regulations. If the case constitutes a criminal offence, criminal liability shall be pursued according to law.

Article 17    These Measures shall be interpreted by the General Administration of Customs.

Article 18    These Measures shall come into force as from 1 July 2004, simultaneously repealing the Administrative Measures on Scraps, Saved Remaining Materials, Defective Products, By-products in Processing Trade and Damaged Bonded Goods (General Administration of Customs Order No. 87) issued on September 13, 2001.